USD – The dollar pared yesterday’s gains against most of its major counterparts as investors await the minutes from the Fed’s last meeting.  Last month, Chairman Bernanke and the other FOMC policymakers unveiled a third round of asset purchases, dubbed QE3, but with no predetermined end-date.  Rather, progress in an otherwise stagnant labor market and economic growth will determine when the stimulus measures will come to an end.  However, not much clarity was given as to what constitutes “substantial improvement” in employment conditions.  Investors will thus be paying close attention to today’s release of the FOMC’s minutes a day before the all-important monthly nonfarm payrolls and unemployment reports.  Elsewhere, factory orders contracted by less than expected, coming in at -5.2% versus the -5.9% that was anticipated.  Americans also got a primetime view of the upcoming presidential race last night with the first of three televised debates.  While both candidates offered up big ideas on deficit fighting and steps to promote economic growth, the gridlock in Congress keeps the fears of the so-called “fiscal cliff” alive and well.  Moreover, a bit of good news out of Europe mixed with the largely neutral US data has eased demand for the dollar’s relative safety, at least for the time being.

EUR – The EUR is again testing the 1.30 handle this morning after an uneventful ECB meeting.  Policymakers left interest rates on hold and failed to announce any new stimulus measures.  However, in his commentary afterwards, ECB President Draghi indicated that much progress had been made in determining the OTM’s conditions and that the ECB could soon start buying regional bonds.  However, as Draghi put it, “it’s now really in the hands of the governments.”  With Spain second guessing recently whether it will even request for the ECB to buy its bonds, investors aren’t quite certain that relief is in sight.  As such, yields on Spanish debt are on the rise this morning with the 10-Yr bond heading back towards 6%.  Meanwhile, Draghi rejected the idea that the ECB would participate any further in restructuring Greek debt, stating that the Bank will not be part of “monetary financing.”  Eurozone policymakers also signaled that further rate cuts are unlikely in the near term with regional inflation expected to remain above the Bank’s 2% target well into 2013.  The common currency is thus deriving a bit of support from the more hawkish tone, but the longer term outlook is still for a weaker EUR. 

GBP – Sterling is higher this morning against the USD as the BoE kept interest rates on hold and maintained its bond-buying target.  The decision was widely expected with the current program in place set to run through next month.  However, despite recent increasingly hawkish rhetoric from several of the Bank’s key policymakers, a further £50B will likely be set aside for asset purchases in November. The pound is lower for a fifth straight day against the EUR and its gains against the USD could lose momentum in days ahead.

JPY – The yen is relatively flat this morning ahead of tomorrow’s BoJ policy meeting.  Similar to the BoE and ECB, further BoJ easing appears unlikely with the Bank having just added ¥10T to its asset purchase program less than a month ago. 

Commodity Currencies – The commodity linked currencies are mixed with the CAD and AUD both gaining while the ZAR posted a sharp decline.  The CAD rebounded from yesterday’s declines on hints of a possible rate hike from BoC policymakers and as the price of oil – Canada’s main export – gained back towards $90/bbl mark.  The AUD pared some of its recent losses, but remains within its new lower ranges.  However, further declines appear unlikely as central banks increasingly add the Aussie to their reserve basket, lured by Australia’s AAA rating.  The ZAR was the worst performer, dropping by more than 1% as investors price in a likely interest rate cut from the RBSA as the South African economy teeters on the edge of recession.

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